The Labour Day holiday in early May has historically been a popular time for Chinese tourists to visit Europe for shopping sprees. However, due to limited flights and ongoing travel restrictions following China’s border reopening, luxury stores in Europe are still waiting for the return of the large influx of tourists they relied on for growth. Despite this, luxury brands and investors are starting to recognize that the number of shoppers may be less important than the type of Chinese visitors returning to Europe.
According to travel data firm ForwardKeys, air ticket prices from China to Europe have now increased by up to 80% compared to pre-pandemic levels. As a result, the number of travelers over the May holiday period has decreased by 64% compared to 2019. The people returning to Europe are primarily business travelers and wealthier individuals who have the means and flexibility to travel. LVMH Managing Director Antonio Belloni explained in an interview that Chinese visitors to cities like Paris and Milan are now bigger spenders who are less affected by flight prices. They are also more likely to be granted visas due to their substantial bank account balances.
UBS reported that the average transaction value by Chinese travelers in Europe in March was 28% higher than in 2019. Luxury brands such as Richemont (owner of Cartier), Hermes, and LVMH are well-positioned to benefit from the purchasing power of affluent Chinese shoppers. However, Belloni pointed out that Chinese tour groups are likely to be the last to return, if they return at all. The changing travel patterns post-pandemic have led luxury companies to shift their focus towards attracting wealthier shoppers who have higher spending capabilities. For example, Kering, the parent company of Gucci, is relying on new ultra-high-end “salons” that offer merchandise priced up to $3 million.
Although the return of Chinese travelers to Europe still represents a small contribution, it is gradually growing week after week. Research by Exane BNP Paribas revealed that Chinese consumers rank as the third-largest spenders in Paris and Milan, after the French and Americans, and sometimes even the second-largest in tourist areas. As wealthy Chinese travelers gradually return to Europe and other foreign destinations, the appeal of China’s duty-free shopping haven, Hainan Island, appears to be tapering off among top luxury spenders. Consultancy firm Oliver Wyman discovered that many of those shopping for high-end goods on Hainan Island were making their first luxury purchase, resulting in a lower per-capita spend compared to Chinese tourists traveling abroad.
Luxury companies have reported a consumer comeback, driven by Hainan Island, since February, following the reopening of China’s border and a decrease in COVID-19 cases. Major players in the sector, such as LVMH and Hermes, have experienced significant sales growth in the first quarter of the year, with increases of 17% and 23% respectively. However, comparing these figures to last year’s performance in mainland China, which was heavily impacted by lockdowns and a major shutdown in Shanghai, may skew the results. Analysts suggest that it will be important to assess company performance in relation to the overall sector this year.
Looking ahead, analysts also caution against comparing current spending levels to 2019, when the majority of Chinese luxury spending occurred overseas. It is unlikely that overseas spending will reach those levels again, even in the long term. Luxury brands are grappling with determining a baseline for comparison and adjusting their strategies accordingly. Nevertheless, with the easing of travel restrictions and the gradual return of Chinese tourists to Europe, luxury brands remain optimistic about the potential for growth in this market.
Useful links:
1) WSJ: China’s Shopping Spree in Europe Loses Steam Against COVID-19 Travel Restrictions
2) Euronews: Chinese tourists who shop in Europe are returning, but not in the way and not as many as before
